How I’d invest £1,000 in a stock market crash

The FTSE 100 is up just 0.11% this year, the FTSE 250 is sharply down and inflation is soaring. This is my plan for a possible stock market crash.

| More on:
Businessman looking at a red arrow crashing through the floor

Image source: Getty Images.

A stock market crash could be on the horizon, but bear markets present investors with opportunities as well as challenges.

Here’s how I’d invest £1,000 if share prices tank.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Defensive shares

Defensive stocks would be my first investments in a stock market crash. They’re more likely to deliver stable returns and reliable dividends during turbulent economic times. This is where the FTSE 100 index showcases strength with a wide selection of defensive equities among its constituents.

I’m particularly drawn to utilities stock, SSE (LSE: SSE). The energy company marries a cheap price-to-earnings (P/E) ratio of 7.82 with a respectable 4.27% dividend yield. An attractive combination.

Shareholders may be concerned by Treasury plans to impose a windfall tax on electricity generators’ £10bn excess profits, including wind farm operators. This is a potential headwind to further growth in the SSE share price, which is up 25% over 52-weeks.

However, the policy’s precise impact remains to be seen. On balance, I think this stock could be a good buy for me in a stock market crash.

I’d also seek to diversify my defensive stock purchases into other market sectors. For example, drinks giant Diageo (LSE:DGE) is a Footsie stalwart that’s significantly surpassed its pre-pandemic high. The Diageo share price is down 11% this year. Further selling in a stock market crash could present an attractive buying opportunity in my view.

The company’s consistently distributed dividends to shareholders for over two decades, even throughout the Global Financial Crisis. Coupled with an impressive history of index-beating returns, I regard Diageo shares as quality investments despite the expensive P/E ratio of 28 that represents a risk.

Growth stocks

It’s harder to identify growth stocks I’d buy without knowing the dynamics of the next stock market crash. But bargains can always be found amid the chaos of a bear market. I’d devote a portion of my total investment to snapping up cheap shares with strong growth potential.

One candidate I have my eye on is FTSE 250 tech stock Kainos (LSE: KNOS). The Belfast-based business specialises in digital transformation, counting the NHS and Home Office among its clients. Kainos also partners with Workday on consulting and software solutions.

The Kainos share price has taken a beating this year — it’s down 31.5%. The stock also isn’t cheap at a P/E ratio of 38.48, which again, is a risk. However, Kainos recently posted encouraging financial results for FY22. Revenue was up 29%, breaking the £300m barrier, and the company posted a 3% uptick in adjusted pre-tax profit.

I view any further heavy selling in Kainos shares as a gift to establish a position in a company with a bright future.

Why I’m not worried about a stock market crash

Bear markets form a natural part of the boom and bust cycle. Past performance doesn’t guarantee future results, but patient investors have been rewarded historically by adopting a long-term buy-and-hold approach.

If the stock market crashes, I’d invest £1,000 into a blend of defensive stocks and beaten-down growth stocks with a view to securing good returns in years to come. Bargain hunting when stocks go on sale is one reason I maintain a healthy cash position in addition to the peace of mind during periods of elevated share price volatility.

6 shares that we think could be the biggest winners of the stock market crash

The hotshot analysts at The Motley Fool UK’s flagship share-tipping service Share Advisor have just unveiled what they think could be the six best buys for investors right now.

And while timing isn't everything, the average return of their previous stock picks shows that it could pay to get in early on their best ideas – particularly in this current climate!

What’s more, all six ‘Best Buys Now’ are available to access right now, in just a few clicks.

All you need is an email address to get started

Charlie Carman does not own a position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Kainos. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »